Ownership and Bank Efficiency in Africa: True Fixed Effects Stochastic Frontier Analysis

Abstract

This paper investigates the effects of ownership patterns on bank cost and profit efficiencies taking a sample of 607 commercial banks operating in 53 African countries during the period 2005-2015. Using pooled and modified true fixed effects (TFE) stochastic frontier panel approaches, we obtain two principal results. First, foreign-owned banks are more profit and cost efficient than their domestic peers. Second, privately owned banks outperform state-owned banks. These findings result not only from bank-level inefficiency but also from differences related to other bank- and country-specific factors. Specifically, larger, older, and listed banks with many years of operations in host countries are associated with higher cost and profit efficiency. This study also reveals that ownership concentration (blockholding) has adverse effects for the profit and cost efficiency of banks.

Keywords: ownership, blockholding, efficiency, stochastic frontier analysis, fixed effects

JEL Classification: G21, G28, G30, G32, G38